the whole game is downloaded to your machine. There is no difference between the steam versiona nd the DVD version.
Try updating drivers, and or lower the video settings in the game, see if it makes a difference

I have the stuttering problem on my desktop as well (see sig), its a little here and there but on my machine it shouldn't really.

Altho I did check defrag levels and wondows said something like76-86% fragmented, no idea how that happened as I usually defrag once every few days or when I get bored I check it. BUT I haven't launched HL2 since the defrag so I dont know if it made a diff.

EDIT: Btw, my drivers are up to date except the catalyst, Im using the last version that doesnt include the stupid control center.

It stutters from time to time but for the most part mine is buttery smooth almost maxed out at 1680x1050 4x/8x. Water reflection is turned down from reflect all to reflect world (or whatever the middle setting is).

The "stutter bug" as its known only effects certain people, and nobody is sure why. Even people with nice hardware get it from time to time. Here is an official Valve thread at their site on a beta fix that may or may not solve your issue.

Well I wont be able to play HL2 anymore. My All in Wonder 9600XT just died. When to bootup my desktop and it would do anything but turn on. I removed the video card and turned it on just to see and the speakers proclaimed VGA error so the motherboard is ok. I got back my Geforce4 440MX from a friend and the system works, I just want to get a better video card. HL2 loaded with that card but I haven't gona anywhere graphic intensive.

My friend has XFX GeForce 6600 / 256MB DDR / AGP 8X / Dual DVI / TV Out / Video Card and he says its really good so I'm going to see bout getting that card. Im sick of ATI and their control center, not to mention a few probs witht the card itself. And apparently XFX has a lifetime warrenty on yhr 6600 cards so there's a plus.